Like telling kids the awful truth about Santa Claus or deciding to spend the holiday bonus on treasury bonds instead of a trip to the Bahamas, sometimes we all have to say or do unpleasant or unpopular things. The same is true for co-op and condo board members, most of whom will one day face the dreary prospect of raising maintenance fees, instituting assessments or levying flip taxes. Those tasks may come with the territory but that doesn’t make it any easier for the men and women who have to step forth and break the news to friends and neighbors alike.
“It is never easy to tell shareholders that there are rough times ahead,” says Adelaide Polsinelli, a real estate broker and president of her Manhattan co-op. “The worst thing a board can do is sound an alarm before they have done their due diligence.”
What can be done to soothe the pain of an unpopular announcement or decision? What’s the best way to earn the buy-in and support of the very people on whom these issues will have the biggest impact? It boils down to preparation, honesty and lots and lots of conversation.
Don’t Rain on My Parade
While board members are faced constantly with large-scale decisions and tough calls, there are a few hot-button topics almost guaranteed to stir up trouble among residents. First among them are “money and decoration,” says attorney Dennis H. Greenstein of the Manhattan-based law firm of Seyfarth Shaw LLP. “I’ve always said, if you want a quorum at your next meeting, just tell the residents that the lobby’s being redecorated.”
And while carpeting decisions can consume hours of debate time, the real barn-burners involve that most delicate of American institutions: the wallet. “Monetary changes such as increased assessments are always a problem,” says Steve Greenbaum, director of property management for Mark Greenberg Real Estate Co. (MGRE) in Lake Success, New York.
These days, more and more of these difficult financial decisions are being made, given the state of the U.S. economy and the stark rise in fuel prices over the last six to 12 months. “Every property without exception has been affected by these rising costs,” says Steve Osman of Metropolitan Pacific Properties Inc., in Astoria. “I have buildings that are paying 400 to 500 percent more for fuel than they were six years ago. People see it at the gas station every day and it’s affecting everything.”
To meet these costs, monthly fees are being increased and assessments are being levied. “Nobody wants maintenance to go up, no one wants assessments,” Greenbaum says. “And these decisions are equally difficult for the board because they have to pay these increases, too, but people forget that.”
In nearly every instance, the board’s hands are tied on these issues. “It’s beyond board or management control,” Osman says.
Nipping close on the heels of financial woes are decisions regarding long-standing policy changes. Say a building always allowed subletting in the past but new developments forced a change. Board members should just settle back in their chairs because hours of discussion and yes, perhaps a bit of venom, are sure to follow. What can be done to cushion the blow of unpopular decisions? First off, gathering information and showing residents that everything about the decision was done with due deliberation and care.
“A board’s job is not to raise unnecessary hysteria but to research the options first,” says Polsinelli. “Once the choices are evident, it’s important to inform and update shareholders through the process. It is never a good idea to keep secrets from the shareholders. This is their investment, and they are entitled to know how issues affecting their values are being handled. Proper dissemination of that information is critical, and timing is everything. Presenting a doom and gloom situation is never a good idea until there is a plan or course of action to remedy the problem.”
“The more information the better,” Greenbaum says. As mentioned earlier, “many buildings because of fuel charges had to have mid-year increases.” Greenbaum and his board held informational meetings for residents where they showed current board numbers, how fuel prices had increased, what resources were available and why, ultimately, it was necessary to ask them to contribute financially to mitigating these costs. “With education and information, people really understand that you’re not against them and that this isn’t personal. When you show them the numbers, it becomes business.”
Osman agrees. “You have to share information,” he says. “You don’t want to overwhelm residents by showing them the entire budget because some people don’t relate well to numbers, but you need to show them what energy costs are, what’s being done to solve the problem and where the gaps are. Residents can be as angry as they want to be but numbers don’t lie.”
In fact, not only are residents more willing to accept the changes, they are also more willing to accept the effort that went into making them. “Ninety percent of people understand the decision,” Greenbaum says. “We had people come up to us and the board and say they felt bad that the board had to make these choices.”
It also helps to explain how these problems, if ignored, will impact residents later. Raising maintenance fees, for example, is always preferential to trying to finance debt. “You can’t borrow to pay budget shortfalls,” Osman says. It will adversely affect the desirability of the property later when “banks see that the board has been borrowing to pay its bills.”
“[Shareholders’] initial reaction to anything perceived to be negative is how it will affect them personally,” adds Polsinelli. “It’s imperative for a board to give solid, concrete data explaining how it will impact each shareholder personally, as well as the community as a whole. That helps prevent people from feeling out of control and can avoid turning the situation into a perceived personal attack.”
Showing people the rationale behind decisions can take away some of the mystery, too, says Greenstein. “You always have to explain the pros and cons in terms of maintenance increases or assessments.” Showing residents that the board and management have made a careful study of what is happening at comparable buildings in and around the neighborhood can go a long way toward reassuring unit owners and shareholders that these decisions were not reached lightly. And that the decisions were not reached without the research necessary to back them up.
Greenbaum was involved in the instituting of a flip tax that was smoothed by showing residents exactly what went into the thought process. The tax was based “on what was (similar) in the neighborhood. When we showed them the facts, they said ‘this isn’t such a bad idea.’ As long as you do your homework and show them that you took the extra steps, things usually work out,” he says.
And when it comes to changes in policy, it is vital to let people know what is happening when it is happening. Just as no one likes to open their maintenance fee invoice in January and be greeted with a 10 percent increase, no one likes to find out from neighborly gossip that the pet policy has changed. “You have to be sure that new rule announcements get sent out in a timely manner,” says Greenstein. “In some instances, there have been snafus and people didn’t get the notices. Residents should have 30 days notice with new rules and updates should be included in all sales packages.”
Making the Rules Stick
Once the decisions have been made, a new policy has been born and residents have been informed, it’s time to make the rules stick. Especially if a decision is unpopular, getting unit owners and shareholders to adhere to these regulations can be difficult. The only way to see it through is with a steady hand and a staunch sense of fairness. “You have to put teeth into these new rules,” Greenbaum says. “And you have to stick to it.”
Using common sense, though, is also imperative. One of Greenbaum’s buildings changed their pet policy, prohibiting the walking of dogs on co-op grounds. While this was not a terribly popular change, it was ultimately not an issue for most residents because there was a dog run just around the corner. In one instance, however, an ill dog caused a mess in the lobby. Rather than fine the owner, the board looked at the extenuating circumstances and did nothing, underscoring that although the new rule may have been unpopular, it would certainly not be Draconian in execution. “You have to be fair,” Greenbaum says.
Use a Steady Hand
In nearly all scenarios, the implementation of increased fees, new taxes, new assessments and new rules can be made exponentially easier by simply reasoning with residents. Although flip taxes can be unpopular, especially in a day and age when residents have to squeeze every last penny out of a property or share sale, they also can make sense for the building as a whole. “Flip taxes are a great income generator and the majority of buildings already have them installed,” Greenbaum says. “They can help improve the capital fund or defray maintenance costs.” In short, they can be valuable. The hiccup comes in the fact that according to most bylaws, a 2/3 majority is needed to levy the new tax. Greenbaum helped seal the deal on a flip tax “with informational meetings, literature, newsletters. We asked people to send us their thoughts and tell us why they were against it so we could answer their questions. We had charts and graphs showing how much income would have been made over the last two years if the tax had been in place. It would have been in the hundreds of thousands. People began to see the logic behind it.”
Talking and being open is a solution that simply can’t be beat. “People can’t dispute facts,” Osman says. You have to tell them “this is what it costs to maintain a building, this is what it costs to heat a building. Monthly fees have to cover monthly expenses. That’s just the way it is.”
By sharing information and creating dialogue, a sense of trust also evolves between boards, management and residents. With that sense of trust comes the knowledge that the decisions being made are in the best interests of everyone involved, no matter how painful those decisions may seem. In the end, knowledge equals peace of mind.
Liz Lent is a freelance writer and a frequent contributor to The Cooperator.